Hello,
Having excessive “endogenous” collateral in a lending protocol is generally frowned upon, and granting larger borrowing power to AAVE might lead to harsher liquidations and more pronounced token price declines during market downturns.
That said, AAVE is one of the most liquid governance tokens in DeFi. The acceptable liquidity levels and market data (which our risk team will provide in this thread) suggest that AAVE token holders typically maintain a high health factor, and that AAVE collateral represents only a nominal percentage of the protocol’s debt compared to other assets.
I’m not sure if the suggested parameters are the correct ones. Still, I believe it’s worthwhile to have our risk team assess the proposal and, if deemed acceptable, update our risk parameters accordingly.
I updated this proposal to ARFC as risk parameters update of already onboarded assets doesn’t require a TEMP CHECK.
Disclaimer:
This should come as no surprise. I’m a “reasonably sized” AAVE token holder and stand to benefit from this proposal.